Trans Energy Inc. announced Wednesday that it had sold its drilling rights and working interest in shallow wells targeting the Devonian Shale for $2.75 million before adjustments, but had retained a royalty interest on most wells and drilling rights to deeper formations, such as the Rhinestreet, Marcellus and Utica shales.

Meanwhile, in a separate announcement Tuesday, the independent exploration and production company based in St. Marys, WV, said two horizontal wells targeting the Marcellus have been connected to a sales pipeline in Marshall County, WV.

Trans Energy said the undisclosed buyer would assume the role of operator at approximately 300 wellbores. The buyer also plans to begin a workover program at existing wells that collectively produced at a rate of about 800 Mcfe/d and held proven reserves of 2.5 Bcfe, both as of Dec. 31, 2012. Under the terms of the deal, which closed on Jan. 24, Trans Energy would maintain an overriding royalty interest of approximately 2.5% on most of the wells.

The deal also grants the buyer the right to drill wells in or above conventional shallow Devonian formations, for leases where Trans Energy currently holds rights to such depths. Such wells would pay Trans Energy up to a 5% overriding royalty interest, depending on the net revenue interest.

“This transaction should enable us to enhance our focus on our Marcellus drilling operations,” said CEO John Corp. “It is also designed to incentivize the new operator to convert our Marcellus leasehold to HBP [held by production] status — with no operational or capital obligations on the part of Trans Energy — while still maintaining our ability to step in with our own capital to drill or return wells to production if we need to do so to maintain a lease.”

Although Corp did not identify the buyer involved in the deal, he did reveal that it was “an operator with a significant local presence, and it has a history of success with drilling and operating shallow Appalachian assets. We look forward to working with them as we determine the locations for future wells over the next few weeks.”

Trans Energy said it had retained rights to ensure that production either begins or continues, if necessary to maintain its existing leasehold. The company also has the right to participate in up to 20% of any well drilled by the buyer, unless the latter fails to fulfill its development commitments. Under such a scenario, Trans Energy would be allowed to participate in up to 50% of each well. Trans Energy said its participation right could be invoked at any well, and the failure to participate in any well would not impact the company’s future participation rights.

“In order for the buyer to earn acreage on leases that are not currently HBP, the buyer is required to commit to drilling such acreage on a semiannual basis as part of a development program,” Trans Energy said, adding that it has the power to “choose the drilling locations for these development programs…

“[We intend] to ensure that the buyer drills shallow wells on certain leases that are not currently HBP and in which [our] subsidiary, American Shale Development Inc. (ASD), retains its rights to drill in deeper prospective formations, including the Marcellus.”

According to Trans Energy, both the buyer and ASD have a prioritized a list of leases — collectively more than 3,500 net acres — that they want to convert to HBP by drilling shallow wells.

Trans Energy said two wells — Doman #1H and Doman #2H — were connected to an unspecified sales pipeline on Jan. 17. The first well was drilled with a 4,597-foot lateral and completed with 18 frac stages, while the second well was drilled with a lateral measuring 3,927 feet and completed with 16 frac stages. Both wellbores are parallel to each other and were hydraulically fractured at the same time.

“We look forward to providing an operations update in late February with the 30-day IP [initial production] rates for the Doman [wells],” Corp said. “With the preliminary results from the Doman wells, along with our company’s record setting production results from our recently completed wells in Wetzel County, WV, we are incorporating the information we have learned into the planning for our 2013 drilling program, which we expect will help us continue to develop and prove our acreage position.”

In May 2011, Trans Energy said its Groves #1H well targeting the Marcellus in Marshall County achieved a 30-day IP average of 5,344 Mcfe/d, and produced 4,660 Mcfe on the 30th day of production (see Shale Daily, May 26, 2011). The company drilled and completed additional wells in Marshall County in late 2010 and early 2011, developing its position in northern West Virginia (see Shale Daily, Jan. 20, 2011; Nov. 23, 2010).